Last Auto News – Obama Planning Another Auto Bailout
Last Auto News –
President Obama said yesterday that General Motors and Chrysler can expect further aid from his administration, but new conditions will be attached to any aid package.
According to the Detroit Free Press, Obama told chatters in an online question-and-answer session yesterday, “I think it is appropriate for us to say are there ways for us to provide help to the U.S. auto industry to get through this very difficult time, but the price is you’ve got to finally restructure to deal with these long-standing problems. That means that everybody’s going to have to give a little bit — shareholders, workers, creditors, suppliers, dealers — everybody is going to have to recognize that the current model economic model of the U.S. auto industry is unsustainable.”
Obama acknowledged that “it is not popular to provide help to autoworkers — or to auto companies,” but explained his statement by saying “my job is to measure the costs of allowing these auto companies just to collapse.”
Under the terms of a previous bailout agreement negotiated by the Bush administration, Obama has until next Tuesday to decide whether to continue to fund restructuring efforts by the two troubled companies. A White House task force headed by Treasury Secretary Timothy Geithner and economic advisor Lawrence Summers has been examining the companies’ operations and, reportedly, developing the White House aid package. The Washington Post reports, “The aid package for the companies will be unveiled in the next several days…and will be contingent upon the companies adopting business plans that reflect the fact that they have a smaller share of the auto market.”
The Wall Street Journal reports, “Interviews with task-force members indicate that the administration doesn’t want to let General Motors Corp. and Chrysler LLC slip into bankruptcy protection, a course advocated by some critics of the industry. Instead, the task force is expected to say that it sees viable futures for both GM and Chrysler, but only if there are sacrifices from their managements, unions and GM’s bondholders. The team will also lay out a firm timeline for action.”
Such a plan may demand concessions from many industry stakeholders, including bondholders who own debt the companies already owe.
The Post notes, “So far, even the cuts that the Bush administration called for when it offered the $17.4 billion loan package have proven difficult to implement. Under the loan terms, GM was supposed to strike a deal with its bondholders by March 31 so that they would agree to swap two-thirds of their $27 billion in bonds for an equity stake in the company.” Negotiations with the bondholders, who have so far refused to accept a debt-for-equity swap, have been challenging. “In recent days, lawmakers have singled out GM’s debt holders for their reluctance to make concessions.”
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